Current Ratio

Definition of Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. The current ratio is mainly used to give an idea of the company's ability to pay back its liabilities (debt and accounts payable) with its assets (cash, marketable securities, inventory, accounts receivable). As such, current ratio can be used to take a rough measurement of a companys financial health. The higher the current ratio, the more capable the company is of paying its obligations, as it has a larger proportion of asset value relative to the value of its liabilities.

Current Ratio Details